Bedrock Principles of New Jersey Business Law Examined in New Jersey Appellate Decision

In New Jersey, sale of a business is governed by the contract negotiated by the parties.  But what if the contract is unclear, or the parties don’t agree on what the terms of an oral contract are?  In the case of Lee v. Lee, involving the sale of a restaurant and liquor license in Bergen County, the Appellate Division examined several bedrock principles of New Jersey business law, including oral contracts, the duty of good faith and fair dealing, and how parties are required to deal with each other.  The opinion offers good guidance for the behavior of the parties in  the sale of a business in New Jersey.

 

Background

Mikyung Lee and Seoung Ju Bang orally agreed with Jung Lee to sell them a restaurant he owned in Fort Lee, together with its liquor license.  The purchase price was $892,000, with a $50,000 initial deposit, and then another $50,000 when the contract was signed, with the remainder to be paid over time.  The buyers paid the first deposit, but before a contact was signed, Jung Lee said he needed the second $50,000 deposit.  Believing him to be acting in good faith, they gave him the second deposit.  He promised to send a written contract with the terms they agreed on, which included having Lee’s company, Plan J. Inc., a part of the transfer because it held the liquor license.

However, the contract he sent did not contain all of the necessary terms, so the buyers began operating the business and making monthly payments of $5500 toward the balance without a written contract.  However, despite sending over many proposals, Jung Lee never sent a contract with the terms that were agreed to.  Finally they all met with their attorneys.  Jung Lee had to leave, but said he would sign what he agreed to later, which would be drafted by his and the buyer’s lawyers.  However, the very next day Jung Lee fired his attorney and refused to complete the transaction.  Buyers said that if he didn’t provide an acceptable contract within several weeks they would terminate the transaction and walk away from the restaurant.  Nothing further happened, and the buyers returned the keys and sued Jung Lee and Plan J. Inc. in the Law Division of the Superior Court of New Jersey in Bergen County.

 

The Lawsuit, Appeal and the Appellate Division’s Decision

The Law Division judge held a two day bench trial without a jury and ruled in Mikung Lee’s and Seoung Ju Bang’s favor.  He awarded them $116,500 in damages: $100,000 for the two deposits paid, and $16,500 for the three monthly payments they had made while operating the business.  Jung Lee and Plan J. Inc. appealed to the Appellate Division of the Superior Court.  The Superior Court rejected Jung Lee’s arguments and affirmed the trial judge’s decision.

The sellers argued that because the check had been paid by a third party on the buyer’s behalf they could not sue.  The Appellate Division rejected this out of hand – on a practical and equitable basis, this argument would allow Jung Lee to receive a windfall by keeping money he didn’t earn while failing to give either the buyers or the payor a return of their money or what they bargained for.  He also argued that the contact was illegal because it required the use of his liquor license.  The Court said it didn’t need to decide whether this arrangement was legal or not because since Jung Lee participated in this operation, he necessitated it by his delay, and he got the money, there was no “principled reason” why he should be allowed to keep the buyer’s funds and give them nothing in return.  In short, the court rejected Jung Lee’s arguments.  It found that he breached the oral agreement and ordered him to return the money.

 

The Takeaways

Although it was a short opinion, it reminds us of some bedrock principles of New Jersey business laws.

• Oral contracts are enforceable. Sometimes they are difficult to prove, but where they can be proven they will be enforced.
• Parties to written and oral contracts need to operate in good faith so that each side gets what they bargained for.
• The old chancery maxim still holds true in New Jersey business law: “He who seeks equity must come before the court with clean hands.” This means that if a party argues it should win because the other side acted improperly, it better have acted properly itself.
• Document everything.
• Always ge the contract in writing before paying the money!

 

Contact Us

Our New Jersey business lawyers represent people and businesses in all aspects of New Jersey business law, including litigation; arbitration; mediation; negotiations; sales of businesses and liquor licenses; and   contract negotiation drafting and review.  Call us at (973) 890-0004 or fill out the contact form on this page to schedule an appointment with one of our New Jersey business attorneys.  We can help.